Sandpiper Ltd is in a members' voluntary liquidation after its directors made a statutory declaration of solvency. The liquidator now forms the opinion that the company will be unable to pay its debts in full, with interest, within the period stated in the declaration. What happens?

Correct answer: C) The liquidation becomes a creditors' voluntary liquidation, and the creditors may nominate a liquidator

Explanation

A members' voluntary liquidation depends on a statutory declaration of solvency under s89 Insolvency Act 1986. If the liquidator forms the opinion that the company will be unable to pay its debts in full, with interest, within the stated period, s95 requires the liquidator to make a statement of affairs and seek a decision of the creditors on the nomination of a liquidator. Under s96 the winding up then becomes a creditors' voluntary liquidation. A director who made the declaration without reasonable grounds commits an offence (s89(4)). There is no automatic conversion into compulsory liquidation or administration.